Readiness Assessment for Defence Procurement Strategy – Increased Contracting Authorities (Phase 3b)

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Assistant Deputy Minister (Review Services)

ADM(Fin): Assistant Deputy Minister (Finance)
ADM(Mat): Assistant Deputy Minister (Materiel)
ADM(RS): Assistant Deputy Minister (Review Services)
DG Proc Svcs: Director General Procurement Services
DGMSSC: Director General Materiel Systems and Supply Chain
DPS: Defence Procurement Strategy
FAM: Financial Administration Manual
HR: Human Resources

KPI: Key Performance Indicator
L1: Level One
MAP: Management Action Plan
MND: Minister of National Defence
OPI: Office of Primary Interest
PAM: Procurement Administration Manual
RCN: Royal Canadian Navy
SOP: Standard Operating Procedures
SSE: Canada’s defence policy: Strong, Secure, Engaged

Overall Assessment

The Department of National Defence and the Canadian Armed Forces (DND/CAF), subject to engagement scope limitations, are ready to initiate the delegation of increased contracting authorities (Phase 3b) under the Defence Procurement Strategy (DPS). Updated policies and procedures, and enhanced monitoring activities will further support the initiation and implementation of Phase 3b.

Governance

Governance is in place to support the implementation of Phase 3b. Expectations of what constitutes readiness should be clarified to:
- better guide Level One (L1) preparations for receiving and executing increased authorities; and
- ensure readiness assessments are consistently evaluated in line with those expectations.
Issues and risks identified as part of the readiness assessment process should be monitored by Assistant Deputy Minister (Materiel) (ADM(Mat)) to ensure contracting authorities are exercised in compliance with applicable legislation and policies.

Internal Controls

Appropriate controls have been established in the following areas:
- segregation of duties;
- approach to delegation of contracting authorities; and
- validation of risk-based delegation of contracting authorities.

Risk Management

ADM(Mat) is using a risk register to manage risks involved with the implementation of Phase 3b.
ADM(Mat) has also developed a process for L1s to identify risks and manage risks related to increased delegations of authority.

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Background

Modernizing Defence – Improving Defence Procurement

The DPS and Canada’s defence policy: Strong, Secure, Engaged (SSE) both include initiatives to streamline the procurement process by increasing contracting authorities for DND/CAF, with the goal of enabling “80 percent of defence procurement contracts to be managed by Defence.”

Assistant Deputy Minister (Materiel)

As the procurement functional authority for DND, ADM(Mat) has developed and implemented a compliance framework and readiness assessment process to support the delegation of increased contracting authorities to L1 organizations within DND/CAF.
ADM(Mat) is implementing DPS and piloting the readiness assessment through a temporary program office.^{Footnote 1} It also has an organization dedicated to monitoring compliance with delegated contracting authorities. Increased contracting authorities will not result in organizational changes, but may impact how monitoring activities are performed.

Increased Contracting Authorities (Phase 3b)

To increase the efficiency and timeliness of procurement activities and deliver on priorities in SSE, through Phases 1 to 3a, DND/CAF contracting authorities have increased significantly. For example, ADM(Mat)’s authority for competitive goods has increased from $25,000 to $5,000,000 (see Annex A).
In Phase 3b, ADM(Mat) is assessing the readiness of selected L1 organizations^{Footnote 2} across DND/CAF for increased contracting authorities. Concurrently, a unit within the Royal Canadian Navy (RCN) will have its delegated contracting authority increased to pilot and inform on ADM(Mat)’s on-going assessment processes.

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Objective, Scope and Criteria

This is the third in a series of reviews performed by Assistant Deputy Minister (Review Services) (ADM(RS)) to assess the Defence Team’s readiness for increased contracting authorities. Overall results of the two previous engagements can be found at Annexes C and D.

Objective

The objective of this review was to assess the Defence Team’s readiness to execute Phase 3b of the increase in contracting authorities as part of the DPS.

In Scope

Phase 3b of the initiative on increased contracting authorities.
Implementation of the Management Action Plans (MAP) for the ADM(RS) Readiness Assessment of Phases 2 and 3a.

Scope Limitation

Contract file review, as L1s have not received increased contracting authorities.
The readiness of the five selected L1 organizations.
The effectiveness of the readiness assessment and monitoring processes were not assessed, as they were under development during this engagement.

Criteria

Compliance Framework – Governance structures and mechanisms provide direction, oversight, controls and information for decision making to support increased contracting authorities across the Defence Team.
Readiness Assessment Process – ADM(Mat) has a readiness assessment process in place to evaluate L1 readiness for increased contracting authorities.

Further information on the methodology and scope of this engagement can be found at Annex E and the statement of conformance.

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ADM(RS) Assessment of Readiness for Phase 3b

Table 1. Summary of Results by Area Examined. This table summarizes the areas examined for Phase 3b and the corresponding results.
-	Areas Examined	ADM(RS)’s Assessment
-	Areas Examined	Compliance Framework	Readiness Assessment Process	Overall
Governance	Training	●	●	●
	Human Resources	●	●	●
	Communications Strategy	●	●	●
	Performance Measurement and Management	●	●	●
	Organization Structure	●	●	●
	Policies and Procedures	◐	◐	◐
	Oversight and Monitoring	●	◐	◐
Internal Control	Segregation of Duties	●	●	●
	Approach to Delegation of Contracting Authorities	●	●	●
	Validation of Risk-based Delegation of Contracting Authorities	●	●	●
Risk Management	Risk Identification	●	●	●
Risk Management	Risk Mitigation	●	●	●

Legend

Table 1 Details - Summary of Results by Area Examined for Phase 3b

Table 2. Governance by Criteria. This table outlines the area examined and corresponding observations.
Areas Examined	Compliance Framework ●	Readiness Assessment Process ●
Training ●	ADM(Mat) and Assistant Deputy Minister (Finance) (ADM(Fin)) have established guidance and procedures to ensure that procurement and contracting authorities are delegated only when mandatory training requirements are met.	ADM(Mat) evaluates whether L1s have a process in place to track, monitor and regularly review that procurement and contracting authorities are delegated only when training requirements are met.
Human Resources (HR) ●	While the capacity was not assessed, ADM(Mat) has a dedicated project office to help L1s prepare for increased contracting authorities.	While ADM(Mat) considers L1 HR capacity as part of the readiness assessment process, a methodology to assess the adequacy of L1 HR capacity has not been established (see Policies and Procedures).
Communications Strategy ●	Communication tools include various accessible contracting/procurement committees, discussion forums and a dedicated GCPedia secretariat page for increased visibility and collaboration.	ADM(Mat) has a dedicated project office to help L1s prepare for increased contracting authorities and has facilitated two-way communications at the working level.
Performance Measurement ●	Metrics have been developed to measure: procurement cycle time; contracting irregularities; fair, open and transparent procurement; and Defence Team client satisfaction.	ADM(Mat)’s readiness assessment evaluates whether L1s have a process in place to measure procurement/contracting performance relevant to Phase 3b implementation.
Organizational Structure ●	ADM(Mat) has a dedicated organization responsible for monitoring activities within the procurement and contracting functions of the L1s and ADM(Mat).	ADM(Mat)’s assessment process evaluates whether L1s have established appropriate accountabilities, responsibilities and authorities and organizational structures to manage the Phase 3b implementation.

Table 2 Details - Governance by criteria

Table 3. Observations on Policies and Procedures. This table outlines observations for policies and procedures.
Compliance Framework ◐	Readiness Assessment Process ◐
Guidance to L1s Policies have not been updated to ensure L1s are aware of the requirements and expectations associated with increased contracting delegations. The Procurement Administration Manual (PAM), DND/CAF’s procurement policy, had not been updated to reflect increased delegation of authorities at the time of this engagement. While ADM(Mat), as the only L1 with increased contracting authority, has internal guidance related to increased delegations of authority, there is a risk that key guidance is not readily available to other L1s. For example, ADM(Mat)’s internal procedures stipulate requirements for those with Sec 32/34 and Contracting Authorities. While ADM(Mat) plans to update its internal guidance, based on the results of the pilot readiness assessment with the RCN and as authorities are delegated to L1s, interim measures/guidance are required to communicate expectations for increased delegation of authorities to L1s. Additionally, ADM(Mat) plans to update the PAM in 2021 to align with all internal guidance, based on their experience with the RCN pilot.	Readiness Assessment Template The readiness assessment template used to evaluate L1 implementation plans for increased contracting authorities lacks procedural details to consistently assess and determine if L1s are ready to exercise increased delegated authorities. Readiness assessments can result in the following recommendations: Approval, Approval with an Action Plan, Reassessment, or No Approval. Reviewers make a recommendation by compiling the results of each area assessed in an L1s implementation plan. Each area is assigned a “readiness score” on a scale from 1 to 5. While some guidance is available to assess each area, procedural details are lacking. For example, it is not clear what constitutes a score from 1 to 5, and how these scores are accumulated to make an overall assessment. For example, in the area of HR, the assessment tool asks if the organization “provides an organization chart or sufficient information to demonstrate that there are ample human resources available to manage the volume of work specific to the organization?” The template does not indicate what type of evidence is required to sufficiently demonstrate ‘ample’ human resources, or criteria to assign a rating from 1 to 5.

Table 3 Details - Policies and Procedures by criteria

Table 4. Observations on Oversight and Monitoring. This table outlines observations on the audit criteria of Oversight and Monitoring.
Compliance Framework ●	Readiness Assessment Process ◐
Monitoring Compliance with Contracting ADM(Mat) is monitoring contracting compliance across the Defence Team through its existing compliance program. Remediation strategies for significant instances of L1 non-compliance have not yet been identified. ADM(Mat) identifies issues by monitoring problem tickets and inquiries, and by performing compliance reviews through site visits. Reviews are based on a sample of contract files. ADM(Mat) has noted that sample sizes will increase for L1s with increased delegated authorities. ADM(Mat) has not identified remediation strategies for significant instances of L1 non-compliance after increased delegations have been granted. During the audit, it was not clear what measures ADM(Mat) would take if major/frequent instances of errors or non-compliance in contracts and contracting practices were identified. For example, would temporary restrictions be imposed on an L1’s contracting authority pending the development of an action plan to address the issues/problems?	Readiness assessment results and oversight/monitoring activities There is no plan to follow up on concerns/risks that are identified in the L1 readiness assessments. While it is clear that readiness assessments which are recommended for Approval with an Action Plan, will be subject to follow-up, it is not clear when this will occur. Current guidance on when an action plan should be in place is as follows: Most controls are in place, but compliance difficult to determine. Some risks are identified with mitigation strategies but could use improvement. Issues are identified that could negatively impact the efficiency and effectiveness of operations. Confident that the organization can succeed if recommended action plan items are implemented. Without more guidance in the assessment template, there is a risk that if most areas in an L1s implementation plan are assessed as strong (a rating of 5) this could lead to an overall assessment of Recommend for Approval, even with one or more significant areas of concern/risk where action plans would be important.

Table 4 Details - Oversight and Monitoring by criteria

Governance Recommendations

Policies and Procedures

ADM(RS) Recommendation (Medium)

Table 5. Internal Controls by Criteria. This table outlines the areas examined for internal controls and the corresponding observations.
Areas Examined	Compliance Framework ●	Readiness Assessment Process ●
Approach to Delegating Contracting Authorities ●	A risk-based approach to delegation is being captured in ADM(Mat)’s Complexity and Risk Assessment form, which must be completed as part of an L1’s Procurement Plan. This assessment form is used to determine the rank or level of contracting authority required to approve the contract.	ADM(Mat)’s readiness assessment process evaluates how and when L1s use a Complexity and Risk Assessment Form, and whether they apply a risk-based approach to assigning contracting authorities. This, for example, includes examining whether an L1 assesses the risk of non-compliance of delegated contracting authorities in their organization.
Validation of Risk-based Delegation of Contracting Authorities ●	ADM(Mat)’s compliance framework includes processes to monitor and confirm the compliance of the L1s’ assignment of contracting authorities.	ADM(Mat)’s readiness assessment process has monitoring and oversight mechanisms in place to validate the L1s’ assignment of contracting authorities.
Segregation of Duties ●	ADM(Mat) examines segregation of duties through compliance visits.	The readiness assessment package communicates ADM(Mat)’s expectation of segregation of duties to L1s.

Table 5 Details - Internal Controls by criteria

Table 6. Risk management by Criteria. This table outlines the areas examined for risk management and the corresponding observations.
Areas Examined	Compliance Framework ●	Readiness Assessment Process ●
Risk Identification ●	Implementation risks (department-wide and L1 level), associated with increased contracting authorities have been identified and documented. Periodic updates to the risk registers have been observed.	L1 implementation plans include risk registers which demonstrate there is a process to identify, document and regularly update risks related to Phase 3b implementation.
Risk Mitigation ●	Risk mitigation strategies are to be considered in determining the adequacy of an L1s implementation plan for increased delegation of authorities.	There will be a requirement for the L1s to report back to ADM(Mat) on the management of their risks and risk registers for the implementation of Phase 3b.

Table 6 Details - Risk Management by criteria

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Overall Conclusion

DND/CAF have implemented many governance, control and risk management processes in anticipation of the roll out of Phase 3b to various L1 organizations. The implementation of Phase 3b will facilitate on-going efforts to streamline the procurement process, enabling L1 organizations to contract more efficiently in support of their organizational objectives.

Clarifications to the readiness assessment process and tools will both enhance L1s’ understanding of ADM(Mat)’s expectations for readiness, and ensure the readiness assessment process achieves its primary goal: to assess L1s readiness to take on increased contracting authorities. Continued updates to contracting policies will also ensure L1s are aware of their roles and responsibilities and support consistent and compliant contracting practices throughout the Defence Team.

As the number of L1s with increased delegated authority grows, adjustments to current monitoring activities will further support ADM(Mat) in their role as functional authority for materiel acquisition and support.

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Annex A – Management Action Plan

ADM(RS) Recommendation

1. It is recommended that (ADM(Mat)) continue to update its policies and procedures with consideration given to which controls L1s require to address risks associated with increased contracting authorities within their organisation.

Management Action Plan: ADM(Mat) will continue to update policy, procedures and guidance in response to risks and the lessons learned associated with the implementation of increased authorities within L1 organizations.

Closure: This MAP will be closed once the PAM is updated with the necessary policy, procedures and guidance related to increased contracting authorities.

OPI: ADM(Mat)/DGMSSC

Target Date: March 31, 2022

ADM(RS) Recommendation

2. It is recommended that (ADM(Mat)) continue to update and improve the Readiness Assessment Tool by:

Outlining the approach/steps to assessing each question in the assessment tool.
Establishing minimum performance expectations for each assessment area and the overall assessment.
Clarifying expectations of supporting documentation to ensure controls are in place and working as intended.
Ensuring that any identified risks/concerns are addressed prior to an L1 receiving increased delegation.

Management Action Plan: ADM(Mat) will continue to update and improve the Readiness Assessment Tool by developing and implementing a guidance document that will outline the approach/steps to assessing each question in the assessment tool. The Readiness Assessment Tool will also be updated to include minimum performance expectations for each criteria and will clarify the expectations of supporting documentation. This will ensure that future assessments have controls in place, are working as intended, and become part of the daily business practice when L1s are seeking enhanced contracting authority.

The Readiness Assessment Tool Guidance Document will continue to evolve and will take into consideration the RCN Pilot, as appropriate.

Closure: This MAP will be closed once the Readiness Assessment Tool Guidance Document is produced.

OPI: ADM(Mat)/DG Proc Svcs

Target Date: March 31, 2022

ADM(RS) Recommendation

3. It is recommended that ADM(Mat) define and remediate areas of weakness as identified through their on-going oversight compliance program.

Management Action Plan: ADM(Mat) will continue with their ongoing oversight compliance program. An updated version of the ADM(Mat) Compliance Framework Program (2017) will emphasize the mechanisms in place for L1 organizations/unit non-compliance, such as: governance reviews; assistance to L1s in the development of appropriate corrective measures; and, in accordance with ADM(Mat) functional authority, appropriate recommendations to the Chief of the Defence Staff/Deputy Minister on the delegation of contracting authorities.

Closure: This MAP will be closed once the revised compliance framework is approved.

OPI: ADM(Mat)/DGMSSC

Target Date: March 31, 2022

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Annex B – Timeline of Increase in Contracting Authorities to Minister of National Defence from April 2016 – June 2019

Table B-1. Timeline of Increase in Contracting Authorities. This table outlines the timeline of increase in contracting authorities to the Minister of National Defence from April 2016 to June 2019.
-	Original		Phase 1	Phase 2	Phase 3a	Pilot	Phase 3b
-	Before Apr 2016		Apr 2016	Nov 2017	June 2019	June 2019	TBD
Timeline
Delegation	ADM(Mat)	L1s	ADM(Mat)	ADM(Mat)	ADM(Mat)	RCN Unit	Delegated L1s
Status	TB Approved	TB Approved	TB Approved	TB Approved	MND Authorized	TB Approved	As approved by ADM(Mat)
Goods
Electronic	$25,000	$25,000	$400,000	$2,000,000	$5,000,000	$400,000	$5,000,000
Competitive	$25,000	$25,000	$400,000	$1,000,000	$5,000,000	$400,000	$5,000,000
Non-Competitive	$25,000	$25,000	$40,000	$100,000	$250,000	$25,000	$250,000
Services
Electronic	$2,000,000	$25,000	$2,000,000	$2,000,000	$5,000,000	$400,000	$5,000,000
Competitive	$400,000	$75,000	$400,000	$400,000	$5,000,000	$400,000	$5,000,000
Non-Competitive	$100,000	$25,000	$100,000	$100,000	$250,000	$25,000	$250,000

Table B-1 Details - Increased Contracting Authority

Table C-1. Summary of Results for the ADM(RS) Review of Defence Procurement Strategy – Readiness for Increased Contracting Authorities (Phase 1). This table summarizes the areas examined in Phase 1 and the corresponding results.
-	Area Examined	Considered, Documented and Assessed as Reasonable	Some Deficiencies or Areas for Improvement	Not Considered, Documented or Reasonable
Governance	Training	Yes	-	-
	Oversight and Monitoring	-	Yes	-
	Human Resource Requirements	Yes	-	-
	Organization Structure	Yes	-	-
	Communications Strategy	Yes	-	-
	Policy and Procedures	Yes	-	-
	Performance Management	Yes	-	-
Internal Control	Segregation of Duties	Yes	-	-
	Risk-based Approach to Delegation of Contracting Authorities	Yes	-	-
	Monitoring of Risk-based Delegation of Contracting Authorities	-	Yes	-
Risk Management	Risk Identification	Yes	-	-
Risk Management	Risk Mitigation	Yes	-	-

Table C-1 Details - Summary of Results for the ADM(RS) Review of Defence Procurement Strategy – Readiness for Increased Contracting Authorities (Phase 1)

Table D-1. Summary of Results for the ADM(RS) Review of Defence Procurement Strategy – Readiness for Increased Contracting Authorities (Phase 2&3a). This table summarizes the areas examined in Phase 2 and 3a and the corresponding results.
-	Areas Examined	Results
Governance	Training	◐
	Oversight and Monitoring	●
	Human Resources	◬
	Performance Measurement and Management	◐
	Communications Strategy	●
	Policy and Procedures	●
	Organization Structure	●
Internal Control	Segregation of Duties	●
	Approach to Delegation of Contracting Authorities	◐
	Validation of Risk-based Delegation of Contracting Authorities	◐
Risk Management	Risk Identification	●
Risk Management	Risk Mitigation	●

Legend

Table D-1 Details - Summary of Results for the ADM(RS) Review of Defence Procurement Strategy – Readiness for Increased Contracting Authorities (Phase 2&3a)

Table D-1 Summary: This table summarizes the areas examined and the corresponding results. It has three columns and thirteen rows. The overarching elements examined are listed in the left-hand column. For each overarching element, read across the row to know the corresponding areas examined and the results, which are depicted by symbols.

To the right of the table, there is a legend explaining the meaning of each symbol, as follows:

A completely black circle means the area examined is considered, documented and assessed as reasonable;
A half blacked-out circle (or half-moon) means the area examined has some deficiencies or areas for improvement;
A completely white circle means the area examined is not considered, documented or reasonable; and
A triangle means unable to assess.

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Readiness Assessment for Defence Procurement Strategy – Increased Contracting Authorities (Phase 3b)

Table of Contents

Alternate Formats

Assistant Deputy Minister (Review Services)

Overall Assessment

Governance Recommendations

Policies and Procedures

ADM(RS) Recommendation (Medium)

ADM(RS) Recommendation (Medium)

ADM(RS) Recommendation (Medium)

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